We describe a method to create fractional quantum Hall states of atoms confined in optical lattices. We show that the dynamics of the atoms in the lattice is analogous to the motion of a charged particle in a magnetic field if an oscillating quadrupole potential is applied together with a periodic modulation of the tunneling between lattice sites. In a suitable parameter regime the ground state in the lattice is of the fractional quantum Hall type, and we show how these states can be reached by melting a Mott-insulator state in a superlattice potential. Finally, we discuss techniques to observe these strongly correlated states.